Lannigan and Lannigan (Child support)

Lannigan and Lannigan (Child support) [2020] AATA 5843 (30 November 2020)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2020/SC018728
APPLICANT:  Mr Lannigan
OTHER PARTIES:  Child Support Registrar
Ms Lannigan

TRIBUNAL:Member H Schuster
DECISION DATE: 30 November 2020
DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that:

· From 1 March 2020 to 28 March 2021, Mr Lannigan’s adjusted taxable income is varied to $39,000 per annum.
· The increase in Mr Lannigan’s annual rate of child support payable by $500 is terminated with effect from 1 March 2020.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – liable parent’s income significantly affected due to business failure – special needs of child – whether just and equitable to make a change – decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been omitted from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

This review concerns an application for a change to a child support assessment sought by Mr Lannigan on 2 May 2019 from the Child Support Registrar, Department of Human Services – Child Support, now known as Services Australia – Child Support.
Mr Lannigan and Ms Lannigan are the parents of [Child 1] (born February 2003) and [Child 2] (born December 2004) who are in Ms Lannigan’s care. The child support case in relation to the parties commenced in 2011 and there have been previous decisions to depart from the administrative assessment of child support. Mr Lannigan is the parent liable to pay child support.
In August 2019 Mr Lannigan’s child support liability was $7,776 per annum, based on a determination by the Administrative Appeals Tribunal (the Tribunal) made on 25 January 2019, which relevantly set Mr Lannigan’s adjusted taxable income (ATI) at $50,000 per annum from 12 August 2018 to 31 December 2020 and also increased the annual rate payable by $500 from 1 January 2018 to 31 December 2020.
On 2 May 2019 Mr Lannigan applied for a change to the administrative assessment, also knowns as a departure application, on the basis of (a) [Child 1]’s income (Reason 4) and (b) his cost of living exceeded his earnings (Reason 8A). The application was refused on 29 June 2019 on the basis that there had been no significant change in circumstances since the case was considered by the Tribunal and amounted, essentially to an impermissible request for review of the Tribunal’s decision.
On 7 August 2019 Mr Lannigan made a new departure application based on (a) the argument that his taxable income was less than the assessed ATI and (b) his earning capacity.
On 26 November 2019 Mr Lannigan’s application was refused on the basis that the claimed grounds for a departure from the assessment were not made out. The decision maker found Mr Lannigan’s income was not significantly lower than reflected in the current assessment and that the circumstances in which an earning capacity assessment can be made were not made out. Mr Lannigan’s objection to that decision was disallowed on 3 March 2020.
Mr Lannigan applied to the Tribunal for review of the objection decision on 26 March 2020. The hearing was conducted by telephone on 27 July 2020 with both parents appearing. The Child Support Registrar was not represented at the hearing.
The Tribunal had as evidence before it documents provided by the Child Support Registrar (folios 1 to 427), documents provided by Mr Lannigan (folios A1 to A111) and documents provided by Ms Lannigan (folios B1-B61). Each party was provided with copies of those documents.

CONSIDERATION

The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Child Support (Assessment) Act 1989 (the Assessment Act). This requires the application of a statutory formula which takes into account factors such as the number of children, the level of care provided and the income of each parent.

10. A liable parent or a carer may apply to the Child Support Registrar for a determination to depart from the child support assessment under Part 6A of the Assessment Act (section 98B). Section 98C provides that the Child Support Registrar may make a determination to depart from the formula assessment and establishes a three-step process. The Registrar, and the Tribunal standing in place of the Registrar, must be satisfied:

(i)that one, or more than one, of the grounds for departure referred to in subsection 117(2) exists; and
(ii)that it would be:
(A)just and equitable as regards the child, the liable parent, and the carer entitled to child support; and
(B)otherwise proper;

to make a particular determination under this Part;

The grounds for departure are set out in subsection 117(2) of the Assessment Act. Subparagraphs 117(2)(c)(ia) and (ib) provide as grounds for departure:
(c) that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child:
(ia) because of the income, property and financial resources of either parent; or
(ib)because of the earning capacity of either parent;
…
The standard formula assessment is based on a person’s ATI, which is the ATI determined by the Australian Taxation Office (ATO), with some adjustments which are not presently relevant. However, it is well established, both in the policy adopted by the Child Support Registrar and the decisions by the Tribunal and courts that subparagraph 117(2)(c)(ia) requires a decision maker to take into account the overall financial capacity of a parent to provide for a child, notwithstanding the amount of ATI determined under normal tax provisions.
A person can be assessed on their earning capacity, rather than their actual income, only if the Tribunal were to find that:
·      The person changed her or his occupation or working pattern; and
·      The change in occupation or working pattern was not reasonably justified by the person’s state of health or caring responsibilities; and
·      The person failed to demonstrate that affecting the child support assessment was not a major purpose of the change of occupation or working pattern.
The term “special circumstances” is not defined in the Assessment Act. In Gyselman v Gyselman [1992] FLC 92-279 the Full Family Court indicated that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.
If satisfied that a ground exists and that it would be just and equitable and otherwise proper to make a particular determination, the Tribunal may make one of the determinations in section 98S of the Assessment Act. That section permits a range of determinations, including varying the annual rate of child support payable or a parent’s ATI.
In this case, the issue is whether there are any grounds for a departure from the administrative assessment in force in relation to the parents and, if so, whether those circumstances make it just and equitable and otherwise proper to depart from the assessment currently in force.
At the hearing of this application, Mr Lannigan wanted his income to be determined using his 2018/19 taxable income, which was significantly less than the income set by the Tribunal in 2019. He was forced to close his business in early 2020 and is in receipt of jobkeeper payment while attempting to find work.
By way of background, until his redundancy on 23 February 2018, Mr Lannigan was a full-time employee at [Company 1] with a base salary of $77,000 and car allowance of $25,000. In July 2018 Mr Lannigan and his wife sold their home in Melbourne and moved to [Town]. They purchased a [business] which commenced trading in August 2018. They also bought a residential home in [Suburb]. The purchases were financed using the proceeds of sale of their Melbourne property as well as a mortgage.
The business was conducted through a family trust, the Lannigan Family Trust (the Trust), managed by corporate trustee, [Company 2]. There was no dispute that the Trust and the trustee company are administered by Mr Lannigan and that the Trust’s income in the 2018/19 financial year came from the [Town] [business]. The Tribunal is satisfied that the Trust is under Mr Lannigan’s control and any income derived is generally applied for the benefit of Mr Lannigan and his wife and formed Mr Lannigan’s source of income at the time of the departure application.
Mr Lannigan said the [business], which operated out of leased premises in [Town], served [products]. Like other businesses in the area it was heavily reliant on tourism. Mr Lannigan managed the [business] on a full-time basis, working about 50 hours per week. His wife also worked there part-time. There was one permanent part-time employee and casual staff would be taken on as required, mostly drawn from the stream of younger people travelling the coast of Australia.
The business ceased trading in about March 2020, which the Tribunal takes as 1 March 2020, and has since been listed for sale at about half the original cost of the business. It is not officially closed though Mr Lannigan and his wife have moved back to Victoria where Mr Lannigan is receiving jobkeeper payment of $750 per week and looking for work.
The Tribunal finds that the cessation of the business in March 2020 is a significant change in circumstances and fundamentally affected Mr Lannigan’s income such that it is necessary to consider whether the assessment remains just and equitable. The Tribunal considered Mr Lannigan’s circumstances both before and after cessation of his business.

Mr Lannigan’s income as at August 2019, at the time of making the departure application

Just prior to making his departure application, Mr Lannigan had prepared his 2018/19 tax return. His ATI for 2018/19 was assessed by the ATO as $36,024, based on gross earnings of $39,468 from the Trust, less deductions.
At the time of the hearing in 2019 Mr Lannigan told the Tribunal that he was paid $760 net by the business, equating to gross income of $47,424, while his wife received $480 per week. He told the Tribunal at that time that while the business had been operating at a loss in the first six months of operations, he expected the business to be profitable in the foreseeable future. The Tribunal in the decision of 19 January 2019 found that Mr Lannigan and his wife derived earnings of around $75,000 per annum from the business, but as Mr Lannigan’s time spent in the business amounted to about two thirds of the combined work hours, it was appropriate to attribute him with an equivalent proportion of income, that is $50,000 per annum.
At the hearing of this review, Mr Lannigan told the Tribunal he and his wife drew their wages by way of transfers from their business account ending in #2823 to their joint account as required to meet bills. There appeared to be a change in the pattern of income received in mid-2019: prior to July items were deposited as “wages” but after that time appeared as bank transfers at less regular intervals. He could not explain the changing pattern as he stated his wife was responsible for all the financial transactions.
Ms Lannigan was of the view that the cost of purchases for the business seemed out of proportion with the sales and submitted that some of the purchases may well have included food and household items consumed or used by Mr Lannigan and his wife which would normally be paid for out of earnings. Mr Lannigan denied receiving other benefits from the [business], however, he acknowledged that due to long hours spent in the business he generally had meals there.
The Tribunal considered publicly available small industry benchmarks published by the ATO which allow an assessment of the profitability of a business. For [businesses] (Business Industry Code [Number]) with a turnover of $300,000, generally the cost of goods sold is about 34% to 40% of the annual turnover, while Mr Lannigan’s costs slightly exceeded the top range of that amount at 40.5%. His total business expenses were 117% of the total turnover, which is well in excess of the 84-92% industry range and, clearly, would be unprofitable on a sustained basis.
The Tribunal does not have any direct evidence that the business expenses were exaggerated. However, the Tribunal did not accept Mr Lannigan’s evidence that he received no benefits other than the income from the business. Indeed, he did admit that he generally had meals at the [business] as he spent most of his time there. The Tribunal finds it more likely than not that he saved personal expenses by making use of items purchased for the business. Such usage forms a benefit which is not adequately captured in a person’s tax return.
It is common for small businesses not to turn a profit in the first year of operations, due to start-up costs and perhaps relevant business experience of the owners. As Mr Lannigan himself acknowledged when he told the Child Support Registrar that despite his projected loss for 2018/19 the business would ultimately be profitable.
The Tribunal finds that at the time at which Mr Lannigan’s application for a departure order was made, the circumstances had not appreciably changed from the situation he was in at about six months earlier: the business was continuing to operate, albeit at a loss, which is not unusual for the initial start of a new enterprise.
The Tribunal could not make a finding that Mr Lannigan’s circumstances had materially changed as at August 2019 when he first sought the departure. Nor, despite the likely impact of the bushfires in late 2019, is it possible to conclude that the business at that time was unviable. The Tribunal notes that Mr Lannigan continued to employ staff throughout the school holiday season.
This Tribunal does not have jurisdiction to review or set aside an earlier Tribunal’s decision, but for a significant change of circumstances or serious error of fact. The Tribunal cannot find that there were special circumstances which constitute a proper ground for departure in August 2019.
However, as stated above, a significant change of circumstances occurred in early 2020 when, due to the bushfires and the flooding that followed, tourism in the state was badly affected and led to many regional areas who relied on tourism being badly affected.
In February 2020, after the school holiday season, Mr Lannigan had to let go of their sole permanent employee due to a decline in trade. Thereafter he and his wife attempted to operate the business by themselves. There was little trade in the area and many other businesses closed. Their mortgage was put on hold and they were unable to pay their lease fees. COVID-19 restrictions commenced in March 2020 and Mr Lannigan stated that the business had been shut since then. He stated the business, which he purchased for around $100,000 was for sale for about $55,000 but there had been no interested buyers.
Mr Lannigan relocated to Victoria at the beginning of June 2020.
Mr Lannigan noted that losses made as a result of the business being shut down were funded by personal loans made by him and his wife, which according to the Trust accounts consisted of an unsecured loan of $129,899 (as at June 2019) repayable only when and if the unsecured loan had grown to $161,654.
Mr Lannigan told the Tribunal that they purchased their home in [Suburb], near [Town], in mid-2018 for $980,000 and sold it at the beginning of 2020 for $1,010,000. Settlement was on 1 June 2020, however, due to stamp duty payable on the purchase and selling costs, the real estate transactions cost a net of $37,190. According to the settlement statement, after repayment of an ANZ home loan of $531,203, the net proceeds were $355,258.04 which were placed in a conveyancer’s trust account. Mr Lannigan and his wife have since purchased a new home which was still being built. Money in the conveyancer’s trust account would be applied to the building of the home which would be ready for occupation in September 2020. He estimated the value of his share of the property at $295,000. There is a mortgage of $220,000 on the property which he and his wife also share.
As at August 2020 Mr Lannigan’s income is the jobkeeper payment of $750 per week. His wife receives a weekly jobseeker payment of $319.
The Tribunal agrees that the closure of Mr Lannigan’s business and the subsequent loss of income were a significant change in circumstances which caused the administrative assessment to be no longer reflective of his ability to pay child support. The Tribunal examined the bank statements provided by Mr Lannigan and found there were sporadic deposits made into the [Company 2] ANZ account (ending in #2815), but these did not seem to relate to the daily takings of the business. The Tribunal noted that most deposits into the [Company 2] account and the ANZ One account of Mr and Mrs Lannigan (ending in #5817) were from other accounts which the Tribunal had not been provided. In terms of the spending, there appeared to be little difference in the pattern of spending that was visible on the couple’s joint account (ANZ #5817) and credit card (ANZ #9440) after February. While the accounts were clearly used for groceries and other purchases, there was evidence of continued discretionary expenditure at restaurants, hotels and liquor shops which seems inconsistent with a lack of financial resources.
Furthermore, the Tribunal takes into account that in June 2020 Mr Lannigan received the net proceeds from the sale of their home. While the amount was reinvested into another property, the Tribunal finds that Mr Lannigan had at least some capacity to fund child support payments out of cash receipts in 2020.
There is a ground to depart from the administrative assessment, under subparagraph 117(2)(c)(ia) due to Mr Lannigan’s income, with effect from the cessation of the [business].
Ms Lannigan raised the issue of Mr Lannigan’s current earning capacity given his experience in the [industry]. She suggested that there was plenty of work available but did not provide evidence of such. Mr Lannigan said he was looking for work in the industry and would be only too happy to make payments for child support as soon as he finds work.
The circumstances under which a decision could be made under subparagraph 117(2)(c)(ib) are very limited. The Tribunal decided that while Mr Lannigan essentially became unemployed in about March 2020, the Tribunal finds that this was a result of various factors outside his control and the Tribunal is satisfied that the changes were not made in an effort to affect the child support assessment.

Issue 2 – Would a departure from the administrative assessment be just and equitable?

As the Tribunal is satisfied that there is a ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable to depart from the assessment having regard to the matters set out in subsection 117(4) of the Act which include, consideration of the following matters:
(a)        the nature of the duty of a parent to maintain a child (as stated in section 3); and
(b)       the proper needs of the child; and
(c)        the income, earning capacity, property and financial resources of the child; and
(d)the income, property and financial resources of each parent who is a party to the proceeding; and
(da)      the earning capacity of each parent who is a party to the proceeding; and
(e)the commitments of each parent who is a party to the proceeding that are     necessary to enable the parent to support:
(i)        himself or herself; or
(ii)any other child or another person that the person has a duty to maintain; and
(f)the direct and indirect costs incurred by the carer entitled to child support in providing care for the child; and
(g)any hardship that would be caused:
(i)         to
(A)       the child; or
(B)       the carer entitled to child support;
by the making of, or the refusal to make, the order; and
(ii)        to:
(A)       the liable parent; or
(B)any other child or another person that the liable parent has a duty to support;
by the making of, or the refusal to make, the order; and
(iii)to any resident child of the parent (see subsection 10) by the making of, or the refusal to make, the order.

In essence, the provisions require the Tribunal to direct its consideration to what would be fair to the parents and their children taking into account the factors above.

Mr Lannigan’s resources and necessary commitments

The Tribunal finds that Mr Lannigan’s income significantly reduced after the cessation of his business in March 2020. However, that does not mean Mr Lannigan was without any resources to fund his self-support costs. Bank account statements suggest receipts of some funds in the period from March to June 2020, though in smaller amounts. In addition, the Tribunal notes that the spending pattern of Mr and Mrs Lannigan, as disclosed by their joint account EFTPOS transactions and credit card purchases, show a continued pattern of purchases in restaurants, bottle shops and liquor stores during the period from March to May 2020. Though Mr Lannigan explained that some purchases were undertaken using a credit scheme (buy now, pay later), it appears that any credit purchases were able to be repaid out of the net proceeds of the sale from the home.
The Tribunal is satisfied that due to the sale of his property in June 2020, Mr Lannigan had sufficient means to cover normal living costs and discretionary expenditure during the period prior to the sale. Given that a parent’s obligation to support a child takes precedence over all other expenses, other than those necessary for self-support, the Tribunal concludes that some of those proceeds were reasonably available to support the children, just as they were used to support Mr Lannigan and his wife. The Tribunal finds that, notwithstanding the closure of the business, Mr Lannigan had sufficient funds to provide some support for the maintenance of [Child 1] and [Child 2].
Ultimately the funds from the sale of the [Suburb] home were tied up in the purchase of a new residence. However, by that time Mr Lannigan was granted jobkeeper payment which was made available by the Government from 25 May 2020.
The Tribunal finds that Mr Lannigan should be assessed on the basis that his income was $750 per week or $39,000 per annum for the period from 1 March 2020.
Mr Lannigan did not have any unusual self-support costs. Mrs Lannigan is in receipt of jobseeker payment and child support payments for her two children. The Tribunal finds that she is not dependent on Mr Lannigan.

Ms Lannigan’s resources and necessary commitments

Ms Lannigan is employed on a full-time basis and her 2017/18 ATI was $63,956 and $73,402 in 2018/19. Her household includes the two children of the assessment. She owns her home which is mortgaged. The Tribunal finds that Ms Lannigan’s financial capacity to support the children is reflected by her ATI as assessed by the ATO from time to time.
Ms Lannigan submitted that in addition to ordinary costs, she is incurring medical costs for the children for counselling. The Tribunal in the 2019 decision noted that Mr Lannigan had essentially agreed to contribute half of the estimated out-of-pocket costs in the amount of $500.
In these proceedings Mr Lannigan stated that he had never been advised of the medical issues of the children until the 2019 hearing and he had not seen evidence of medical out-of-pocket costs of at least $1,000 per year.
Ms Lannigan provided evidence showing [Child 1] had received treatment for [a] disorder and required a special diet. [Child 2] was diagnosed with [a] condition in 2020 and some mental health issues requiring counselling. Ms Lannigan provided some evidence about costs incurred for the children since 2018, but these were not confined to purely medical costs. It included evidence of $359 for a learner driver course attended by [Child 1] in 2019, $260 for tutoring in 2019, lessons at [an] academy of $930 ($465 each paid in August and November 2019). There was also evidence, though not invoices, of [Child 1] receiving assistance from [a] disorders service in August 2019 and based on an email from the service, the Tribunal accepts that some costs were incurred in relation to the services. Ms Lannigan explained she was unable to provide full medical histories in relation to the children for 2019 because she could not access the records in time.
In 2020 Ms Lannigan incurred costs of $540 for tutoring in March to June. Invoices were also provided showing out-of-pocket costs of $124.95 for a specialist visit by [Child 2] in February 2020, and counselling sessions commencing 30 June 2020 at $200 per session with a Medicare rebate of $126.50 for the first, and $128.40 for subsequent appointments. Assuming that [Child 2] attends sessions fortnightly after 23 July 2020 for about 10 sessions a year, that would leave Ms Lannigan out of pocket of $717.90 in relation to [Child 2]’s counselling sessions alone.
The Tribunal finds that some of the additional costs of the children, in relation to tutoring and extracurricular activities arise with most children and are not generally special. Ms Lannigan stated that [academy] lessons were an effort to build self-esteem; this would not ordinarily warrant the increase of the child support amount.
However, the Tribunal accepted that there was sufficient evidence that both children had health issues which warranted management and for which costs were incurred, notably, the Tribunal accepted that [Child 1]’s special diet would increase ordinary grocery costs and found it more likely than not that the additional costs per year arising from these conditions were an additional amount which was unusual in the circumstances and which would warrant an additional amount of child support being payable. The Tribunal finds there is sufficient basis to find that the medical costs for [Child 2] alone will be at least $800 per year.
The Tribunal finds that given Mr Lannigan’s financial circumstances it would not be fair to continue to increase his child support liability to cover additional medical expenses from 1 March 2020.
The Tribunal finds that it is appropriate to depart from the child support assessment with effect from 1 March 2020 on the basis that Mr Lannigan’s income be assessed as $39,000 per annum until 28 March 2021, which is the date to which jobkeeper payments have been extended. Mr Lannigan indicated that he would be willing to make new arrangements to pay child support if and when he finds work. It would be open to either him or Ms Lannigan to seek a new departure determination at that time.
The assessment will reduce Mr Lannigan’s annual child support liability to about $3844. While this will reduce the support payable to Ms Lannigan, the Tribunal notes that the actual hardship she thereby faces is more likely to reflect in the recovery of arrears than have an impact on the actual rate paid, since Mr Lannigan’s child support payment are in arrears. While Mr Lannigan cites hardship in having to repay any child support amounts, the Tribunal finds that there are sufficient financial resources that would allow payment of modest child support payments for the maintenance of [Child 1] and [Child 2].

Issue 3 – Is it otherwise proper to depart from the administrative assessment?

The final step for the Tribunal to undertake is to determine whether it is “otherwise proper” to depart from the administrative assessment. Subsection 117(5) of the Assessment Act requires the Tribunal to take into consideration the following matters:
(a) the nature of the duty of a parent to maintain a child (as stated in section 3) and, in particular, the fact that it is the parents of a child themselves who have the primary duty to maintain the child; and
(b) the effect that the making of the order would have on:
(i) any entitlement of the child, or the carer entitled to child support, to an income tested pension, allowance or benefit; or
(ii) the rate of any income tested pension, allowance or benefit payable to the child or the carer entitled to child support.
The child support law recognises that each parent has a primary duty to maintain their children. This is reflected in the assessment of family tax benefits, which are reduced if a parent in receipt of those payments receives maintenance income. As Ms Lannigan receives family tax benefit, reducing the child support payable to her may cause a small increase in family tax benefit. In the circumstances that outcome is proper.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides that:

· From 1 March 2020 to 28 March 2021, Mr Lannigan’s adjusted taxable income is varied to $39,000 per annum.
· The increase in Mr Lannigan’s annual rate of child support payable by $500 is terminated with effect from 1 March 2020.

[2020] AATA 5843

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Family Law

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Jurisdiction

Statutory Construction

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